D-Link 2001 Annual Report Download - page 37

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5
D-LINK CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(4) Short-term investments
Short-term investments are stated at the lower-of-cost-or-market value. Market value is determined
using the net asset value of non-listed securities on the last day of the period, and the average closing
price of the last month of the period for publicly listed securities.
(5) Allowance for doubtful accounts
Allowance for doubtful accounts is provided based on the expected collectibility of trade receivables.
(6) Inventories
Inventories are stated at the lower-of-cost-or-market value. Except for DCI, D-Link and its
subsidiaries determine cost by using the weighted-average method. DCI determines cost by using
the first-in, first-out method. The market value of raw materials is determined on the basis of
replacement cost, and the market values of finished goods and work in process are determined on the
basis of net realizable value.
(7) Long-term equity investments
Long-term equity investments in which D-Link owns less than 20 percent of the investee’ s voting
shares and is not able to exercise significant influence over the investee’ s operations and financial
policies are accounted for by the cost method. If there is evidence indicating that a decline in the
value of such an investment is other than temporary, then the carrying amount of the investment is
reduced to reflect its net realizable value. The related loss is recognized in the accompanying
consolidated statements of income.
Long-term equity investments in which D-Link, directly or indirectly, owns between 20 percent and
50 percent of the investee’ s voting shares, or less than 20 percent of the investee’ s voting shares but
is able to exercise significant influence over the investee’ s operations and financial policies, are
accounted for by the equity method. The difference between the acquisition cost and the net equity
of the investee as of the acquisition date is deferred and amortized over ten years using the straight-
line method, and the amortization is recorded as investment income (loss) in the accompanying
consolidated statements of income.
All significant inter-company gains or losses with investees accounted for under the equity method
are deferred. These gains or losses are recognized in the year that the gain or loss is realized through
a third-party transaction or over the remaining useful life of property, plant and equipment sold
through a related-party transaction.
For investees whose year-end is not December 31st, D-Link’ s share of the earnings or losses of the
investee is recorded based on D-Link’ s weighted-average ownership percentage of its shareholding
in the investee during the calendar year-end period.